Why do investors seem to favour wind energy to solar power?

Businesses are buying more wind and solar electricity than ever before to help lower their carbon footprint in offices, stores and factories. But the two sources of renewable energy are far from getting equal love from corporate America.

Wind energy has long been the favorite. Businesses, not counting power companies, signed 2,000 megawatts of it in 2015, a jump from 100 megawatts in 2009, according to the American Wind Energy Association. Wind energy is enabling Google, the largest corporate buyer of renewable electricity in the world, to hit the 100% renewable energy goal, which it expects to achieve next year. The company has inked 2,548 megawatts of wind contracts and 141 megawatts of solar from projects around the world.

Interest in solar energy is growing, but at a slower rate. Solar contracts shot up to 1,070 megawatts in 2015 from 339 megawatts in 2010, said the Solar Energy Industries Association.

Wind energy has historically been much cheaper than solar, making it a more attractive option, especially when energy can be a major expense for a company. As more businesses come under pressure from their customers, investors or government regulators to cut their greenhouse gas emissions and help rein in global warming, they will be looking for low-carbon energy that can compete with the price of coal and natural gas.

Wind and solar are not the only sources of electricity with lower carbon footprints than coal and natural gas. Hydropower and nuclear are too, and, unlike solar and wind, are able to produce electricity any time. But hydropower plants require access to ample sources of surface water. A nuclear power plant can take longer to secure permits and cost more than building other types of power plants.

“Corporate participation (in buying solar and wind) is still relatively new,” said Brian Janous, director of energy strategy at Microsoft, which recently announced the biggest wind energy contract, at 178 megawatts, in its renewable energy portfolio. “It’s only within the last few years that we’ve seen an uptick, and we’ve yet to fully address the challenges in expanding this market.”

America pioneered early research and development of commercial turbines, installing the world’s first wind farm in 1980 and leading the amount of installations, in megawatts, until the late 1990s, when Germany and eventually China began to catch up and then slowly push ahead. Solar hasn’t experienced the same long term and consistent investments and construction, which help to lower cost.

Wind power costs cratered 66% in the last six years, said the American Wind Energy Association. The lowest price for a wind contract is around $0.02 per kilowatt-hour while it’s $0.03 for solar, said Ryan Wiser, a renewable energy market researcher at the Lawrence Berkeley National Laboratory, part of the US Department of Energy. That minor difference in price can add up to a hefty bill for heavy users of electricity, such as data centers that require an around-the-clock electricity supply.

More than half of the 4,000 megawatts of new wind energy contracts last year, and 3,440 megawatts this year, were signed by companies across industries from tech to grocery chains, according to the wind trade association and the Rocky Mountain Institute. Utilities bought the rest.

Amazon, for example, has invested more in wind and solar in the past two years. It’s paying for power from a 150-megawatt wind farm in Indiana and waiting for a 208-megawatt wind project in North Carolina to come online soon. It’s also signed agreements for several hundred megawatts of new wind energy that are scheduled to start delivery in 2017.

Why solar is playing catch-up

Solar has become an increasingly attractive option following a massive construction of factories to build solar panels, mostly notably in China. Prices for solar contracts have dived 63% over the last five years, said the solar trade association.

In the 2016 ranking of top corporate solar energy buyers, Target gets the top spot with 147.5 megawatts of installed capacity, according to the solar trade association. The retailer is followed by industrial real estate developer Prologis (107.8 megawatts), Apple (93.9 megawatts), Costco (50.7 megawatts) and Kohl’s (50.2 megawatts).

Businesses looking to sign renewable energy contracts or even develop their own solar or wind projects often find themselves on a steep learning curve about borrowing money, structuring contracts and understanding the complex rules that govern the electric industry. Getting rid of these road blocks will encourage more companies to lower their use of fossil fuel energy, business leaders said.

For a company that operates in many states or even countries, figuring out a way to standardize renewable energy contracts helps it to save money and time, Janous said.

“How do we make deals more attainable for not just Microsoft but smaller companies? There has to be some simplification,” he added.

In cities where the local power companies don’t offer much, if any, wind or solar energy for sale, businesses could install their own solar panels or wind turbines on their properties. The cost of this do-it-yourself model has historically been higher than paying for electricity supplied by the local utilities, noted Herve Touati, managing director of Rocky Mountain Institute’s Business Renewable Center. But that cost is coming down and, in some cases, lower than the electricity from the grid.

“It’s cheaper for Microsoft to use onsite generation than ask utilities to double their existing grids,” Touati said.

Companies with renewable energy contracts or a stake in a solar or wind farm typically don’t use that low-carbon electricity directly – electricity from power plants of all types usually enters the transmission lines and gets mixed up. As a result, businesses would count the amount of solar or wind they pay for against their overall electricity use to calculate their carbon footprint reduction.

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Kunlere is an environment and sustainable development strategist with years of active experience in environmental compliance monitoring and enforcement. You may follow him on Twitter via @kunlere_idowu

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